THE PHYSICAL DISTRIBUTION SERVICE AS A DETERMINING FACTOR IN THE PURCHASE DECISION PROCESS – PART 2

The first part of this article presented the physical distribution service as a determining factor in the retail purchasing decision process. In this sense, it was found that the current economic environment in recent years has been decisive for the increase in the importance of the physical distribution service for commercial relations along the chain of consumer goods, more specifically between the link that comprises manufacturers and networks of supermarkets.

This second part seeks to assess: What is the level of satisfaction of trade with the distribution service of the consumer goods industry? Do companies holding the best practices have their performance differentiated by retail trade?

The Satisfaction Level of Commerce with the Industry Distribution Service

Analyzes of the dynamics of the perceived quality of service provided by the industry to the retail trade consider the three main dimensions of the industry's physical distribution service: product availability; order cycle time; and delivery time consistency.

The survey evaluated both the industries with the best practices and those with average performance in the sector. The level of dissatisfaction was obtained from the perception of the industry's performance related to the minimum level of service expected by the trade. Figures 3 and 4 show the evolution of the percentage of traders dissatisfied with the performance of industries over the last ten years.

At first, as seen in the first part of this article, the sudden increase in demand promoted by the economic stabilization plan in 1994, led to the appreciation of the physical distribution service. This caused an increase in the level of dissatisfaction with the service provided by the industry in general:

• Whether due to the drop in industry performance caused by the lack of service capacity to respond to the strong increase in trade sales;
• Whether due to the pressure exerted by the supermarket trade for better service levels aimed at increasing operational efficiency as a means of recomposing the profitability that was reduced due to the loss of financial gains that were earned during the inflationary period, pre-1994.

Figure 3 – Evolution of the Percentage of Dissatisfied Retailers with Industry Best Practices

Figure 4 – Evolution of the Percentage of Retailers Dissatisfied with Industry Practices

However, after a recovery in 1997, it was found that the percentage of dissatisfied increased for suppliers with best practices, while industries with average performance had better luck.

In 2001, as shown in the first part of this article, customer service was at a higher level in terms of importance in the retail purchasing decision process. This happened due to the strong economic crisis observed in the period between 2001 and 2003.

In this period, inflation grew by 38,5%, worker income was reduced by 20,3% and the economy had an average annual growth of only 1% per year. Due to this negative scenario, there was again a generalized deterioration in terms of satisfaction, this time at a more pronounced pace. As shown in the first part of this article, the consumer's loss of purchasing power induced the trade to reduce the pattern of purchases from the industry, emphasizing the price to the detriment of the product.

When analyzing Figures 3 and 4, it is verified that the industries with the best practices absorbed the increase in demand well, at first, showing little variation in terms of retailers dissatisfied with the physical distribution service between 1994 and 1995. However, , this number of dissatisfied people began to grow from 1997 to 2003: from 7,0% to 42,9% of dissatisfied with the consistency of delivery times; from 7,0% to 22,2% of retailers dissatisfied with product availability; and from 7,0% to 19,9% ​​dissatisfied with order cycle time.

In the case of the sector's average industry, there was a large increase in dissatisfaction between 1994 and 1995, and a long period of improvement until 2001, when the entire sector began to present a significant generalized worsening until 2003. Figures 3 and 4 clearly illustrate the sharp decline in satisfied retailers after 2001.

The worsening of the average performance of the sector's industries, between 1994 and 1995, was as follows: from 40,0% to 71% of dissatisfied with the consistency of delivery times; from 19,0% to 45,0% dissatisfied with the order cycle time; and from 30,0% to 41,0% of retailers dissatisfied with product availability.

From then on, the percentage of people dissatisfied with product availability dropped from 41,0% in 1995 to 25,0% in 2000, rising to 33,2% in 2003; in the case of consistency of delivery time, there was a reduction from 71,0% to 40,5% between 1995 and 2001, and an increase to 71,9% until 2003; and for the order cycle time, the percentage of dissatisfied people reduced from 45,0% to 18,9% between 1995 and 2001, increasing to 42,3% in 2003.

In short, the analysis points to an abrupt and generalized growth of dissatisfaction in the trade with the physical distribution service provided by the industry in recent years, notably from 2001 onwards. for leaner logistics, where the tolerance to deal with uncertainties is reduced.

In this sense, inventory reduction and delivery time initiatives must be accompanied by agile operational and decision-making processes based on relevant, accurate and timely information. Thus, it can be said that “information replaces inventory”. Otherwise, the possibility of disruption of the physical flow due to stock-outs or product delay increases.

It is interesting to point out that it was in 2000 that the distribution service jumped to a higher level in terms of importance in commercial relations between retail and industry – precisely when the full negative impact of the economic crisis that had been installed since 1999 was felt. It was also in 2001 that the price returned to be the main variable in the purchase decision of the trade to the detriment of the product.

Next, the dynamics of the level of dissatisfaction will be evaluated: Is it a function of the variation in the level of trade demand, or the performance of the industry, or both simultaneously?

THE SATISFACTION LEVEL OF THE TRADE WITH THE INDUSTRY'S DISTRIBUTION SERVICE

As a rule, one can observe, in Figures 5, 6 and 7, the significant increase in the level of trade demand for the best physical distribution service in the industry, in the three main dimensions of the service, notably from 1997 and 2001. It is important to emphasize that in some years, despite the better performance of the industry, there was an increase in dissatisfied retailers. In these cases, the performance improvement was not enough to compensate for the increase in demand.

These combined effects underscore the importance of permanently monitoring the needs of customer segments, as well as their perceived performance. After all, the key objective is to offer relevant services to customer segments that can become a source of differentiation against the competition.

In the case of the product availability dimension, the minimum trade expectation regarding the delivered percentage of the total order varied at first from 87% in 1994 to 85% in 1997. Afterwards, a significant increase in the required service level was observed, from 85% in 1997 to 93% in 2000, regressing to 90% in 2001 (see Figure 5). As of 2001, there is a substantial increase in the minimum expectation: from 90% in 2001 to 98,2% in 2003 – the highest level of the entire historical series.

Figure 5 - Evolution of the Percentage Delivered from the Total Order

On the other hand, as a rule, the performance of best practices has shown a consistent deterioration since 1994, albeit relatively small. While best practices delivered an average of 99,4% of the total order in 1994, this percentage dropped to 97,5% in 2003.

Contrary to best practices, industries with average performance in the sector tended to improve the level of service offered in the same period, notably from 1997 onwards. 93,8% in 1994, reaching 90,0% again in 1997.

Figure 6 also illustrates a strong increase in demand for consistency of delivery time, notably since 1997 and 2001. The level of tolerance for late deliveries that was 10,7% in 1994 increased to 15,3% in 1997, reaching 5,9% in 2000. In 2001 the minimum requirement dropped to 8,7% of late deliveries. Currently, commerce does not tolerate more than 3,8% of delays in total orders placed in the month.

Figure 6 - Percentage of Late Deliveries

In terms of performance, the best practices showed, at first, a deterioration in performance: from 4,6% in 1994 to 5,4% of late deliveries in 1997. From then on, an improvement in performance of 5,4 .1997% in 3,4 to 2000% in 2000. However, performance deteriorated from 5,8 onwards, reaching 2003% of late deliveries in XNUMX.

The performance of the market practice, which was at 15,8% in 1994, deteriorated significantly in 1997, reaching 21,1%. In 2000, the index presented its lowest value, 13%. However, since then, this index has grown again and in 2003 the market practice returned to an average of 15,3% of late deliveries.

The order cycle time dimension confirms the trend of increasing demand from retailers over the period considered. The tolerance in terms of cycle time, which was a maximum of 4,2 days in 1994, increased to 2,1 days in 2003, as seen in Figure 7.

Figure 7 - Order Cycle Time

Best practices have a significant loss in terms of differentiation with respect to industries with average performance in the sector. After a decline in performance from 1,5 days in 1994 to 2,8 days in 1995, a strong improvement in performance is observed until 1999, when the average delivery time reached 1,6 days. However, in the following period, the cycle time, which had worsened to 2,1 days in 2000, was reduced to 1,7 days in 2001, worsening again to 2,1 days in 2003.

To a large extent, the performance of the sector's average industry has shown consistent improvement over the same period. The cycle time, which between 1994 and 1997 was at a level of 4,2 days, was reduced to 2,9 days in 1999. After a deterioration in 2000, when performance reached 3,5 days, the cycle time in 2003 improved at the level of 2,6 days.

Apparently, this is a dimension in which the trade perceives a convergence in the performance of the industry as a whole. Thus, the potential for differentiation becomes less evident for companies that have the best practices.

CONCLUSION

In The survey data, in general, indicate that in recent years retail has shown growing dissatisfaction with the industry's physical distribution process, considering the three main dimensions of customer service.

It is important to point out that the high and growing levels of dissatisfaction observed, notably from 2001, are based on the strong increase in the relative importance of the distribution service in the decision-making process for retail purchases, which is put into practice to the extent that this requires industry-leading performance in terms of product availability, lead time consistency, and order cycle time.

It can be seen, therefore, that the sharp increase in the level of demand from 2001 onwards has resulted in the worsening of the situation of dissatisfaction with best practices, insofar as these also showed a drop in performance. For the sector's medium-sized industries, even when there was an improvement in performance, this was not enough to avoid an increase in dissatisfaction in the period.

From the performance point of view, it is observed that, in general, the companies that have the best practices are losing prominence in terms of differentiation in the sector. This fact is especially observed in the response time of orders placed by the trade.

Considering the analyzes presented in both parts of the article, the research results indicate that, when the purchasing power of the consumer decreases, retailers adapt to their needs, ordering products that are more accessible to the industry. In other words, the price gains space for the product in the decision-making process for purchases in the trade.

It should be noted that highly competitive environments characterized by the growing importance of price and promotion and advertising, to the detriment of the product, can lead to a commoditization process in the sector.

It is important to stress that differentiation is at the root of winning strategies. This is based on the observation that unless products can be differentiated from competitors, there is a great possibility that the market will perceive them as “commodities”. In this case, price becomes the core of competition, which in turn can lead to decreasing profitability of the business.

The best way to get around this “trap” is to incorporate services into the products offered as a way of adding value so that the market differentiates them from the competition. This situation is aggravated if we consider that in the consumer goods market there is a technological convergence, which makes it difficult to differentiate based on product characteristics. Added to this is the fact that the final consumer, due to the strong erosion of yields, exerts strong pressure on retailers to negotiate with the industry based on more accessible prices.

The “price war” can be circumvented, to a large extent, through logistics services that can simultaneously promote improvements in terms of service level and cost reduction in the supply chain.

The retail market is increasingly aware of the benefits arising from the greater reliability and responsiveness of its suppliers, which are reflected in the rationalization of operating costs due to better use of installed capacity and reduction in inventory levels. It should be remembered that, currently, shareholders consider return on assets to be one of the most relevant performance indicators in evaluating their companies.

If we consider that all costs will, in one way or another, spread along the supply chain, ultimately these will be reflected in a more accessible price for the final consumer, and contribute to maintaining attractive margins. It is always important to remember that leading edge companies recognize that the basis of competition has shifted from company versus company to supply chain versus supply chain.

In short, the general picture of the increased importance of the distribution service in the retail purchasing decision process, combined with the deterioration of industry performance and the increased level of trade demand, must be seen as an opportunity to develop competitive strategies that have a strong emphasis on logistics capabilities.

BIBLIOGRAPHY

FLEURY, PF, LAVALLE, CR Evaluation of the physical distribution service: the relationship between the consumer goods industry and the wholesale and retail trade. Management and Production, vol. 4, nº 2, August 1997.

CHRISTOPHER, M. Logistics and Supply Chain Management: strategies for reducing costs and improving service. Prentice Hall, 1998.

BOWERSOX, DJ, CLOSS, DJ Business Logistics: the supply chain integration process. Atlas publishing house, 2001.